as we continue our study of the parole evidence rule i'd like for us to spend some time in the lesson looking a little bit deeper into the idea of what is or is not a collateral matter to the main contract that certainly was a major issue in mitchell versus lathe and it comes up again in our next case that case being masterson versus sign a california supreme court case from 1968. the ultimate issue the court decides here involves determining whether there has been a complete integration of a real estate deal based on whether the parties intended their writing to serve as the exclusive embodiment of their agreement in this case the writing was the deed of conveyance the background facts of masterson make it particularly interesting because of some of the complexity going on the original owners of the property in question were dallas and rebecca masterson they owned a ranch and they sold it to dallas's sister and her husband they are the signs and the deed that was filed as a conveyance on the property in that deed dallas and rebecca reserved an option to repurchase the crop property and that's no big deal having an option to repurchase but the question here is what does that option mean and here's why dallas masterson went bankrupt and when he filed for federal bankruptcy that meant that every asset and property that he and his wife owned would would include the option to repurchase the property that is a legal right that has some value and that option in theory at least would become part of the bankruptcy estate it is therefore under control of the bankruptcy trustee who is trying to liquidate assets for the benefit of creditors the trustee for the masters in bankruptcy tried to exercise the option to purchase the land because at the time he was exercising the option it was far more valuable than its purchase price the trustee's goal as i mentioned is to maximize the money available to pay off creditors dallas who was the party who went bankrupt wanted to testify that the option retained in the sale to his sister and her husband lou was personal to him which is to say he dallas did not have the legal right to assign it to anyone else it was a very limited assignment it was not alienable and for that reason it could not legally pass into the bankruptcy estate the problem here is that was not literally what the deed said the california supreme court with an opinion by chief justice roger traynor notes that evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled well that's a little bit of a lower bar than what we've seen before the rule he goes on must therefore be based on the credibility of the evidence one such standard permits proof of a collateral agreement if it is such an agreement as might naturally be made as a separate agreement by party situated as were the parties to the written contract so we're still looking at the deal to try to imagine whether this provision would have naturally been in the contract now however we're going to take that standard a little bit lower than what the court did in mitchell versus laith here chief justice trainer looks at the deed and he says the option clause in the present case does not explicitly provide that it contains the complete agreement and the deed is silent on the question of assignability so what that does is it actually places the burden on the party wanting to keep out the parole evidence as a result because there is no statement that the deed is intended to be complete chief justice trainer is going to presume that it would not be complete in other words this isn't a fully integrated contract he says the case is one therefore in which it can be said that a collateral agreement such as that alleged might naturally be made as a separate agreement and the case is not one in which the parties would certainly have included the collateral agreement in the deed now as we'll see in a moment that view is going to draw a stinging descent from another justice on the court but let's first take a look at the deed language which i should tell you is not actually in the opinion excerpt in your case book my apologies for that but it's useful for us to read the deed language said here on the left side of your screen that it reserved unto grantor's herein an option to purchase the above described property on or before february 25th 1968 for the same consideration as being paid heretofore in other words the price won't change plus their depreciation value of any improvements grantees may add to the property and so forth well so far so good that would be a standard reservation clause but what they are arguing that it means and this is the same text except we have added the underlined or the bolded portion i should say that the reservation is exercisable by grantors only and not by any transferees assignees or purchasers for the same consideration the argument is oh yes there is a reservation of who can repurchase the property but it was exclusive and we just didn't include that in the deed when we word it this way the descent's view seems a little more reasonable than the approach taken by the majority with chief justice trainer so let's now look to that descent the dissent argued that actually we should have expected this to be in the deed because the option permitted the defendants to establish by the parole testimony something that was really suspicious that the grant to the brother-in-law of an option that was absolute in its terms was publicly nevertheless agreed to be non-assignable by the grantee in private and that therefore the right to exercise the option did not pass by operation of the bankruptcy laws to the trustee for the benefit of the seller's creditors okay so that was the argument then the dissent gets really upset here about how that was to be shown by the proffered testimony of the bankrupt optionee himself thereby one of his assets the option to purchase defendants california ranch would be withheld from the trustee in bankruptcy and from the bankrupt's creditors the dissent is saying here that this whole transaction looks an awful lot like collusion and that two branches of the family here are agreeing to say something that happened in the deal that probably isn't what actually happened in the deal still the california supreme court ultimately decides to allow the testimony because this restriction of the option given for this particular deed which did not have a lot of restrictive language in it could conceivably possibly be a side deal and therefore we're going to allow in the parole evidence this brings up a larger issue if you will of the relative popularity of the parole evidence rule although the parole evidence rule has a lot of supporters and it certainly has a long tradition in the english and american common law it also has a lot of enemies two of these enemies are shown on the screen carl lewellen was the chief drafter of uniform commercial code article 2 on sales of goods he was such an opponent of the parole evidence rule that he would have gotten rid of it entirely the problem was the rest of the drafting committee would not allow him to do that the merchants who were involved on the committee that is the business people really liked the parole evidence rule and fought to keep it in the ucc where it is today in section 2-202 by reading masterson you could get the sense and you would be right the chief justice trainer like llewellyn also did not care for the parole evidence rule so i ask you to think about that what reasons would these famous legal minds like llewellyn and traynor possibly have for disliking the parole evidence rule and on the other side why do you think the merchants are so fond of it ultimately the fact is the parole evidence rule is a rule of substantive contract law that is a limitation on judges and what they can do such that judges cannot allow certain evidence in many cases many judges however are highly confident with varying degrees of reason to be so of their ability to resolve disputes and to reach the truth and the right result both trainer and llewellyn had this in common they had great faith in the ability of judges and they viewed the parole evidence rule as something that stood in the way of substantial justice being done like when there was a deal along the lines of what we had in mitchell versus laith and there was actually no dispute that the parties had agreed the ice house should be turned down but nobody was allowed to prove that merchants on the other hand tend to like the parole evidence rule they like the certainty of it we have a writing we can rely on that writing and we can know that nobody is going to come around and add to it or contradict it if we draft it properly commercial certainty is what favors the parole evidence rule but in opposition to the parole evidence rule is the fact that it sometimes can work an injustice by preventing testimony and other documentation of what was really going on in the deal between the parties and that brings us to the uniform commercial code section that is the ucc version of the parole evidence rule as it ultimately made its way into the code it tracks the common law to a large extent but it does have some specific exceptions that it is helpful for you to be more aware of section 2-202 says terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement so far so good that sounds a lot like the parole evidence rule that we know of from the common law but the ucc drafters were intent on carving out some exceptions that actually have worked their way into the common law as well testimony from before or during execution of an agreement we see here may be explained or supplemented so those are a couple of reasons we're going to let it in by these things course of performance course of dealing or usage of trade we'll see what those three things are on the next screen and part b by evidence of consistent additional terms unless the court finds from the writing that the parties intended a fully integrated agreement that would be the complete and exclusive statement of the parties of the terms of the agreement and in that regard section 2-202 has a lot in common with the common law parole evidence rule but what about these three terms course of performance course of dealing or usage of trade they are actually defined in article 1 of the code which is the big general article since there is an explicit grant allowing this kind of evidence in in all cases it frequently actually does come in in ucc disputes involving the sale of goods so what are we going to allow in evidence of a course of performance that is a sequence of conduct between the parties to a particular transaction which is proof of what the parties have done so far in this same contract that is a course of performance what you've done earlier in the same contract second course of dealing is what happened in previous transactions between the same parties in to the to the transaction that we're now in a dispute regarding the course of dealing embodies the idea that whatever the parties did in their past contracts should be allowed to help form what the meaning is of the current contract thus we would let in evidence of course of dealing even though it predates the contract that is currently being disputed finally and maybe most importantly in a lot of instances usage of trade is any practice or method of having such regularity of observance in a place vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question usage of trade in effect is industry custom perhaps we do things a certain way in the hardware store industry in the real estate industry or in other kinds of businesses where there is something about what certain terms mean and the way that they work usage of trade gets to come in even into a fully integrated agreement so be aware of all three of these types of terms course of performance which is the same deal course of dealing which is all the deals that came before and usage of trade what people generally do in a particular industry these kinds of evidence will always get around the parole evidence rule under the ucc that brings us to the end of this lesson on collateral matters as an exception to the parole evidence rule in our next lesson we will explore the use of so-called merger clauses in written contracts that are intended to bolster the application of the parole evidence rule